The Government Accountability Office issued a scathing report on the title insurance industry on April 24, detailing a lack of competitiveness, regulation and questionable costs.
The GAO report–"Title Insurance: Preliminary Views and Issues for Further Study"–was released through Rep. Mike Oxley, R-Ohio, chair of the House Financial Services Committee, who had requested the inquiry in January.
Among the key concern cited:
o Seventy-one percent of the money paid by homeowners for title search and examination costs generally goes to title insurance agents.
o Title insurance is the only product in which regulators don't require premiums to be supported by underlying costs.
o Despite high commissions, "most states do not appear to consider such costs to be part of the premium, and thus do not include them in their premium rate reviews."
o Although title agents appear to play a critical role in the underwriting process, "the extent to which state insurance regulators review their operations is unclear…It appears that few states regularly collect information on title agents' operations, and three states [and] the District of Columbia do not even license title agents."
o The extent of competition to benefit consumers within the title insurance market is not clear.
o Consumers "generally lack the knowledge necessary to 'shop around' for a title insurer and therefore often rely on the advice of professionals, such as real estate agents and lenders," said GAO. "As a result, title agents normally market their business to these professionals, creating a form of competition from which the benefit to consumers is not always clear."
o "Affiliated business arrangements," in which entities such as real estate brokers, lenders and builders are increasingly becoming full or partial owners of title agencies, create potential conflicts of interest, GAO found.
o Multiple federal and state regulators oversee the different entities involved in the title insurance industry, "but the degree of their involvement and the extent of coordination among them are also not clear."
o GAO concluded that "oversight…is essential to ensuring that title insurance markets are functioning fairly, and the extent of examination and oversight afforded this industry segment reportedly has varied significantly."
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